Goldman Sachs Raises US Recession Risk To 35%, Expects Inflation At 3.5% In 2025 Amid Tariff Uncertainties: Economist Mohamed El-Erian Highlights 'Stagflationary Twist'

Allianz Chief Economic Advisor Mohamed El-Erian highlighted a significant shift in Goldman Sachs‘ outlook for the U.S. economy, noting that the investment bank has given its economic projections a “stagflationary twist.”

What Happened: El-Erian noted on X that Goldman Sachs economists have added a “stagflationary twist” to their U.S. economic outlook.

He highlighted that the firm raised its 2025 personal consumption expenditures inflation forecast— the Federal Reserve's preferred gauge— by 0.5 percentage points to 3.5%, while projecting gross domestic product growth to slow to 1.0% on a quarter-over-quarter basis.

Goldman Sachs has increased its U.S. recession probability from 20% to 35%, El-Erian notes, an increase of 75%.

This revised outlook comes amid broader economic concerns. S&P 500, tracked by The SPDR S&P 500 ETF Trust SPY and the U.S. Dollar Index, has declined simultaneously, a pattern not seen since the 2008 financial crisis, signaling potential economic instability.

In a move likely to be followed by other forecasters, economists at @GoldmanSachs just gave a stagflationary twist to their US economic forecasts.
2005 PCE inflation, the Federal Reserve's favorite inflation measure, was revised up by 0.5 percentage points to 3.5%, while growth…
— Mohamed A. El-Erian (@elerianm) March 30, 2025

Why It Matters: Market sentiment remains cautious with futures declining Sunday night as investors brace for President Donald Trump‘s anticipated “Liberation Day” tariff announcements scheduled for Apr. 2.

The major indices are poised to end March with sharp declines, with SPY down 6.27%, SPDR Dow Jones Industrial Average ETF DIA dropping 5.15%, and Invesco QQQ Trust QQQ tumbling 8.09%.

While Goldman Sachs has increased its recession forecast, PIMCO maintains a similar view, with Managing Director Tiffany Wilding stating that they see a 30-35% chance of recession. However, Wilding added they expect any recession would be “light” and the economy would “come out of it relatively quickly.”

El-Erian noted that this week will be packed with key economic reports, including the monthly employment data, the Job Openings and Labor Turnover Survey, the Institute for Supply Management’s business activity index, and retail sales figures.

Additionally, markets will be watching the Apr. 2 tariff announcement and remarks from Federal Reserve Chair Jerome Powell and other officials.

The US leads a busy week "look ahead" for the global economy and markets with a string of data releases — including the monthly jobs reports, JOLTS, ISM, and retail sales — the April 2nd tariff announcement, and remarks by Chair Powell and other Federal Reserve officials.
We…
— Mohamed A. El-Erian (@elerianm) March 30, 2025